Wednesday, November 10, 2010

Malaysia Equities Poised For Bull Run

Malaysia’s equities market is on the verge of a bull-run similar to the one seen in the early 1990s and the indications are that it is sustainable, the chief investment officer of HwangDBS Investment Management said.

“Conditions for 2011 are ripe and any pull-back now is an opportunity for investors,” said David Ng, who manages about RM8.9 billion for the fund house.

Malaysia, he said, is “unexpectedly exciting” so long as the government can execute the projects announced in its US$444 billion economic transformation programme last month.

However, Ng cautioned that it would not be a repeat of 2009-2010 where over 90 per cent of stocks rose following the crisis.

“2011 will be about stock-picking,” he said.

The benchmark FBM KLCI has risen by almost 20 percent since the start of the year, setting a 34-month record on yesterday.

The FBM KLCI has risen more than its Singaporean counterpart, but has not matched the meteoric rises in Indonesia, Thailand and the Philippines, which have surged over 40 per cent each.

Analysts say part of the reason for the KLCI’s climb is the pre-election enthusiasm, but Ng said there were fundamentals supporting the rise. Malaysia is expected to hold general elections next year although they aren’t due until 2013.

Present conditions were similar to those in the 1992-1994 bull run, Ng said, and the low interest rate environment in developed economies could further fuel the growth spurt here.

Analysts expect further massive inflows of capital into Asia, driven by the second round of U.S. quantitative easing and warn that this may spark inflationary pressures and asset bubbles.

“Areas where we are positioned are the oil and gas sector and banking in Malaysia,” Ng said. “Regionally, we like technology and tourism in Singapore.”

The performance of these sectors will continue to be fueled by demand from big emerging economies such as China, India and Indonesia, and are insulated from a slowdown in developed markets, Ng said.

He said he preferred high-yielding dividend stocks as those companies tended to have better fundamentals.

The inflow of funds has been well-documented by international observers, and has led the World Bank to issue a warning over the possibility of asset bubbles. Ng said bubbles posed a real risk but there have yet to form.

HwangDBS Investment Management has averaged a 15 per cent return per annum on its assets under management since 2000, Ng said. - Reuters

FBMKLCI breaches all time high

Persistent support for heavyweights pushed the FBM KLCI to a new all time high today, despite some profit taking in the local bourse as well as key regional markets.

The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) which has been on an uptrend since last week ended 6.68 points higher at 1,526.53, although it had seen an intra-day all time high of 1,526.67 earlier. It had opened 1.87 points higher at 1,521.71.

The previous intraday high record was 1,524.69 seen on Jan 14, 2008.

The bull trend is expected to extend till February next year amid inflow of foreign funds, especially from the US to emerging markets such as Malaysia, Affin Investment Bank Head of Retail Research Dr Nazri Khan told Bernama.

"It is mainly hot money from the U.S. as a result of the U.S. Federal Reserve's policy of quantitative easing amounting to US$600 billion," he said.

Hence, he said commodity-linked counters would be the main beneficiaries.

Nazri said the local bourse momentum was "a sustainable bull-run" as there was still ample of room for growth in the Malaysian equities market.

"There is room for more volume as compared to the regional peers," he said.

HwangDBS sees boom market conditions
KUALA LUMPUR, Nov 9 — Low interest rates in the US and Asia will drive money into equities, creating boom and possibly bubble-like conditions in the stock market, said HwangDBS Investment Management Bhd chief investment officer David Ng.
The investment manager acknowledged that there were still concerns about a double-dip recession, but he sees easy liquidity outweighing weak growth and said that conditions are “right for a boom market”.
“If the US economy grows 2 per cent, it is good enough,” he said in at a press conference today. “As long as there is slow growth and loose monetary policy, it can fuel a bubble. This is a long-term secular trend.”
He said strategists were beginning to be more bullish on Malaysia and noted that some have been talking about current conditions — such as low interest rates and a strong current account surplus — being similar to those leading up to the “super bullish” years of 1993 to 1995 when Malaysian shares were traded at up to 30 times price-earnings ratio.
“Money is like water and will flow to where interest rates and yields are higher,” said Ng. “You are losing your purchasing power by putting money in a bank. Our investment strategy is based on low interest rates. Money has to find a home.”
He said that as the market will be supported by ample liquidity, any pullback in shares is an opportunity for investors to pick up shares and earn more money.
He said that he still sees markets moving up next year after a “muted” 2010 and likes stocks that pay good dividends as they tend to be of better quality.
While acknowledging that Malaysia has tended to be perceived as a boring, defensive and marginalised market, he said that he has been seeing foreign inflow of funds for the past 23 consecutive weeks.
The HwangDBS forecast of a possible boom in equities comes a day after a US-based asset management firm told Malaysian reporters that the inflationary policies in the US would benefit emerging markets.
Stephen Dover, international chief investment officer of Franklin Templeton Investments, said a large consensus has emerged that QEII — the US$600 billion (RM1.8 trillion) worth of liquidity being introduced by the US Federal Reserve by June next year — is positive for emerging markets and a high portion of QEII will go to emerging markets.
Ng cautioned however that the days of high returns experienced in 2009 are over.
“2011 is about stock picking,” he said. “Investors should not be greedy. The big 50-60 per cent returns are behind us and returns will be more normalised.”
Risks to the stock market boom could come from runaway inflation triggering central banks to raise interest rates.
“Too much liquidity has a tendency of leading to inflation and if inflation becomes too much of a problem, they will raise interest rates,” he said.
While Dover said Asian finance ministers will have their hands full trying to prevent speculation and overheating of their markets due to a surge in liquidity from the US, Ng said that he saw little risk of capital controls being implemented.
“We should be smart enough to know that capital controls would make you undesirable,” he said.

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